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Google, which has been getting help from HTC for years with its Android smartphones, has reached a $1.1 billion agreement with the company to hire some of HTC’s best engineers to create new smartphone designs and technologies as it works to expand its sales in the global handset market.
The deal, which was unveiled Sept. 21 after rumors had surfaced the day before, will bring to Google members of the HTC team who have already been involved in designing and building Google’s popular Pixel smartphone models, according to a joint statement. Under the agreement, Google is also receiving a nonexclusive license for HTC intellectual property that allows it to be used for Google products in the future.
The deal is not an overall purchase of HTC’s smartphone unit but instead gives Google the ability to hire about 2,000 smartphone-focused workers from HTC’s team, a Google spokeswoman told eWEEK. The HTC workers will join Google’s hardware team as Google employees, she said.
For HTC, the deal with Google will allow HTC to streamline its product line and work to reverse its recent financial difficulties due to competition around the world. HTC will also continue to have its Vive line of popular virtual reality products.
And for Google, the deal will help boost the company’s innovations and engineering in creating and producing smartphones on its own to take on Apple, Samsung and other competitors.
“HTC has been a longtime partner of Google and has created some of the most beautiful, premium devices on the market,” Rick Osterloh, Google’s senior vice president of hardware, said in a statement. “We’re excited and can’t wait to welcome members of the HTC team who will be joining Google to fuel further innovation and future product development in consumer hardware.”
In a Sept. 21 post on The Google Blog, Osterloh wrote, “These future fellow Googlers are amazing folks we’ve already been working with closely on the Pixel smartphone line, and we’re excited to see what we can do together as one team.”
The deal furthers those ongoing relationships, which started about a decade ago with the first-ever Android smartphone, the HTC Dream, also was also known as the T-Mobile G1; the Nexus One in 2010; the Nexus 9 tablet in 2014; and the first Pixel smartphone in 2016, wrote Osterloh.
“It’s still early days for Google’s hardware business,” he added. “We’re focused on building our core capabilities, while creating a portfolio of products that offers people a unique yet delightful experience only made possible by bringing together the best of Google software—like the Google Assistant—with thoughtfully designed hardware.”
Charles King, principal analyst at research firm Pund-IT, told eWEEK that the deal “reaffirms the relationship between the companies and underscores the value of their work together. The fact is that HTC is a premiere maker of Android handsets, and the company will offer Google solid value for competing in a smart phone market shifting toward luxury products like the new iPhone X.”
In addition, the transfer of employees involved in Pixel product development and related IP will ensure that Google can retain that talent and technologies in case HTC ever decides to become acquired, said King. “Along that line, the $1.1 billion Google paid offers HTC a substantial cushion that will help it remain competitive while sorting out its financial problems.”
Historically, the deal has some similarities to the lifeline $150 million share purchase Microsoft offered Apple in 1997, said King. “Though Google’s deal won’t result in any shareholder status, it still offers a critical partner some financial breathing room. That’s a good deal for both companies.”
Another analyst, Jan Dawson, the chief analyst of Jackdaw Research, agrees, saying the deal has echoes of Microsoft’s bailout acquisition of Nokia several years ago. “HTC is a far less important strategic partner to Google, but this very much feels like Google offering a financial lifeline to the very unprofitable and shrinking HTC in return for some assets it needs,” said Dawson.
“Those assets are IP necessary to make Pixel phones without being sued by HTC or anyone else, but also [bring] the research and design skills necessary to build those phones exactly to Google’s specifications and needs rather than having to work off HTC’s foundation and platform, [which was] originally built for other devices.”
This optimization and resulting deeper integration with Android “are going to be critical for Google to squeeze the most out of its hardware efforts, though it also needs to go deeper on the chips side, something it’s been reported to be doing separately,” he said.
“From HTC’s perspective, the cash infusion will give it breathing room to continue working on a strategy that can again provide sustainable profits in the long run, presumably with its Vive VR business at its core,” said Dawson. “I do wonder why Google didn’t just buy the whole company—at under $2 billion market cap, Google could presumably have paid roughly double what it is and had the whole thing, taking what it needed, including manufacturing capability, VR hardware expertise and other useful pieces, and shut the rest down.”
At the same time, Dawson said HTC’s viability remains in doubt, even with the cash from Google. “I’m still not sure I see a viable future for HTC even with this investment and the attendant changes,” he added.
The Google HTC deal is subject to regulatory approvals and customary closing conditions and is expected to close by early 2018.